Today's Commentary

Updated on September 24, 2023 9:57:54 PM EDT
This week has six monthly and quarterly economic reports that have the potential to affect rates. There are also a couple of Treasury auctions that may come into play during afternoon hours midweek and some Fed speeches that traders will watch. After the benchmark 10-year Treasury Note yield touched its highest point since 2007 Thursday, we saw strength late Friday. Hopefully that will extend into tomorrow's session, allowing mortgage rates to start the week on a favorable note since there is nothing scheduled to drive trading, the only day without at least one item.

September's Consumer Confidence Index (CCI) will kick-off this week’s activities at 10:00 AM ET Tuesday morning. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show a decline in confidence from August's reading, meaning surveyed consumers were not as optimistic about their own financial situations as they were last month. Rising confidence is thought to raise the possibility consumers will make a large purchase in the near future. Because consumer spending makes up almost 70% of the U.S. economy, good news for rates would be a large decline. Analysts are calling for a reading of approximately 105.3, down from August's 106.1. The smaller the reading, the better the news for the bond market and mortgage rates.

Tuesday's second piece of data will be August's New Home Sales report. The Commerce Department is expected to say at 10:00 AM ET that sales of newly constructed homes fell last month, but this report will likely not have a noticeable impact on mortgage rates unless it differs greatly from forecasts. It is the week's least important report in terms of potential impact on mortgage rates, partly because it covers only the small portion of all homes sales that last week's Existing Home Sales report did not.

Next up is August's Durable Goods Orders at 8:30 AM ET Wednesday that indicates manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years such as airplanes, electronics and appliances. Analysts are expecting to see a 0.2% decline in new orders, pointing towards slight weakness in the manufacturing sector. A larger decline should help boost bond prices and cause mortgage rates to drop because signs of economic weakness make longer-term securities more appealing to investors. However, an unexpected increase in new orders will likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a small variance from forecasts may not affect mortgage pricing like it would in other reports.

We also have the first of this week's two potentially influential Treasury auctions taking place Wednesday. The Treasury will sell 5-year Notes Wednesday and 7-year Notes Thursday. They will tell us if there is an appetite in the markets for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of the sales will be announced at 1:00 PM ET each day, so any reaction will come during afternoon trading Wednesday and/or Thursday.

Thursday morning brings us the second revision to the 2nd Quarter Gross Domestic Product (GDP). While the GDP is important because it is the total sum of all goods and services produced in the U.S. and is considered to be the best gauge of economic activity, this data is pretty aged now and the preliminary reading of the current quarter will be released next month. I don't see this update having much of an impact on the financial markets or mortgage pricing. Thursday's update is expected to show that the economy grew at an annual rate of 2.1%, unchanged from last month's estimate. A significant downward revision would be considered favorable news for rates even though it probably will have a minimal impact on rates either way.

Friday has the final two reports that will draw attention from traders. The first is August's Personal Income and Outlays at 8:30 AM ET that gives us an indication of consumer ability to spend and current spending habits. This is relevant to the markets because consumer spending makes up such a large part of the U.S. economy. Rising income generally means consumers have more money to spend, making economic growth more of a possibility. That is negative news for mortgage rates because bonds tend to thrive in weaker economic conditions. Forecasts are calling for a 0.5% rise in income and a 0.5% rise in spending. If we see weaker than expected readings, the bond market should react positively, leading to lower mortgage rates Friday. This report also includes the PCE index that the Fed primarily uses for gauging inflation. A surprise in it can also lead to a strong move in mortgage pricing.

Closing out this week's calendar will be the University of Michigan's revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed a 67.7 reading. Analysts are expecting to see no change, meaning consumer confidence was as strong as previously thought. Waning confidence is good news for bonds because consumers that are concerned about their own financial and employment situations are less likely to make a large purchase in the near future, limiting economic growth. Therefore, a lower than expected reading would be favorable news for rates.

In addition to this week’s economic reports and Treasury auctions, there are also Fed member speaking engagements taking place throughout the week that may draw a reaction. Fed Chairman Powell has one scheduled for 4:00 PM ET Thursday. He is hosting a town hall meeting with educators in person in Washington DC and nationally via webcast. The fact the participating audience are mostly teachers and others in the education field, there isn’t a high expectation of this event moving the markets. That said, any time he speaks, the markets listen and may react accordingly.

Also worth noting is that the House of Representatives will be back this week to tackle the pending government shutdown that will happen on the 30th without a temporary spending bill in place. The outlook at the moment is not good, meaning there is a high probability of a shutdown Saturday night. In general, this would likely be a favorable event for bonds and mortgage pricing, hopefully giving us some much-needed relief from the recent spike in yields and rates. News of a deal that will pass both chambers of Congress should have a negative influence on rates. No progress towards a deal will likely help boost bonds and lower rates as the week progresses.

Overall, the most active day for rates may be Friday, but Wednesday is expected to have a noticeable move also. No day stands out as a clear candidate for calmest day since there is so much scheduled. We can expect to see an active week for rates, so keep an eye on the markets if still floating an interest rate and closing in the near future.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

 ©Mortgage Commentary 2023
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